In recent days, serious concerns have been expressed regarding the performance of the Sri Lankan economy.
In this context, it is instructive to gauge the level of external support for the Sri Lankan economy from international capital markets. This would be an independent barometer of the health of the Sri Lankan economy as international capital markets are hard-nosed in their assessments.
In terms of Section 35 of the Monetary Law Act No. 58 of 1949, the sixty eighth Annual Report of the Monetary Board of the Central Bank of Sri Lanka was presented to Hon. Mangala Samaraweera, the Minister of Finance and Mass Media, by Dr. Indrajit Coomaraswamy, the Governor of the Central Bank of Sri Lanka.
A summary of the performance of the Sri Lankan economy in 2017 as reflected in the Annual Report is given below:
The Central Bank of Sri Lanka (CBSL) has observed media reports erroneously highlighting lack of funds to pay-off Treasury bonds before their date of maturity.
CBSL notes that there is no accuracy in above media reports and highlights the unblemished debt service payment record of the government in servicing both domestic and foreign debt. The payment of interest and principal at maturity on due dates (timely payment) and not before the due date is followed to the rule by CBSL in discharging its agency function of managing public debt on behalf of the government.
Inflation, as measured by the change in the National Consumer Price Index (NCPI) (2013=100), which is compiled by the Department of Census and Statistics, increased to 6.4 per cent in June 2016 from 5.3 per cent in May 2016, on year-on-year basis. Both Food and Non-food categories contributed towards the year-on-year inflation in June 2016.
The change in the NCPI measured on an annual average basis increased to 3.1 per cent in June 2016 from 2.7 per cent in May 2016.
Headline Inflation, as measured by the change in the National Consumer Price Index (NCPI, 2013=100), which is compiled by the Department of Census and Statistics (DCS), continued to follow the declining trend exhibited since November 2017. As such, the year-on-year NCPI headline inflation decreased to 2.8 per cent in March 2018, lowest since April 2016, from 3.2 per cent in February 2018. The monthly decline in Food prices in March 2018 supported by the favourable supply conditions attributed to this sharp decline in year-on-year inflation in March 2018. The change in the NCPI measured on an annual average basis decreased from 7.2 per cent in February 2018 to 6.7 per cent in March 2018.
After constructive discussions with the authorities in Colombo and during the Spring Meetings in Washington DC, Manuela Goretti, the IMF mission chief for Sri Lanka, issued the following statement:
The increasing trend in both headline and core inflation continued, reflecting the rise in demand driven inflationary pressures in the economy. Supply side disruptions arising from adverse weather conditions and the revisions introduced to the tax structure by the government also contributed to the upward movement in inflation in the past two months. Meanwhile, in the real sector, the available indicators suggest a continuation of the growth momentum in economic activity. In particular, power generation, tourism and port related services, construction sector, investment goods imports as well as the purchasing managers’ indices (PMI) for manufacturing and services sectors have shown improvements over the past few months.
Sri Lanka’s external sector recorded a modest performance in April 2016. The trade deficit narrowed on account of the higher decline in import expenditure mainly due to the drop in the importation of vehicles and rice, compared to the decline in earnings from exports during April 2016. Although workers’ remittances were marginally lower in April, earnings from tourism increased strengthening the current account of the Balance of Payments (BOP) while inflows to the financial account continued to moderate.
Mr Anthony Nihal Fonseka has been appointed by His Excellency the President as a Member of the Monetary Board of the Central Bank of Sri Lanka with effect from July 27, 2016 in terms of Section 8(2)(c) of the Monetary Law Act.
The Manufacturing Sector PMI reached a 12-month high and signalled a strong upturn in manufacturing activities by recording 65.6 index points in March from 55.6 index points in February 2018 and was in line with the pattern observed in previous years. The increase of PMI in March was largely attributable to increasing orders in line with the seasonal demand as reflected by increase in New Orders and Production sub-indices. Stock of Purchases and Employment sub-indices also increased during the month. Further, lengthening of the Suppliers’ Delivery Time sub-index also contributed positively to the overall increase. However, most respondents, especially in the Textiles and Apparel sector, highlighted difficulties in finding both skilled and unskilled workers.
